Forms of doing business in India – An Opportunity to achieve Dreams

Background

In today’s world, where everyone is trying to become his own Boss by doing his business and achieving his dreams. Thanks to the Government and its“Make in India” campaign, which has relaxed the norms of doing business in India and provides numerous opportunities to the new entrepreneur to start his own business? Government has not only relaxed the laws but also has reduced the compliances/approvals and has eased the process to start one’s own business. In India, there are various form of business, which a person can opt according to his needs, requirements and financial capacity for achieving his dreams. Therefore, it is very important for a person to understand the form of business available to him. The various forms of business can be classified as follows:

Sole Proprietorship;
Partnership;
Societies;
Limited Liability Partnership {LLP}
Company:
- One Person Company;
- Private Limited Company
- Public Limited Company

All the above models of businesses have its own advantages and disadvantages. There are possibilities that one form of business suits to one category of person and might not be suitable to the other person. For example, a small fruit shop is owned and run by a single person who performs all the activities i.e. managing, financing, transportation etc. alone, so, for such person “Proprietorship” would be a better form of business. However, for renowned/established business entities, it would not be possible for a single person to manage the entire things alone so in that scenario, proprietorship would not work. For ready reference of the user, each form of business has been discussed in detail to help the user to take rational decision while selecting the nature of business:

Sole Proprietorship:
1. This is the most simple and easiest form of doing business. The sole Proprietor (Single Person) is the owner of the business. There is no specified enactment to govern this form of business or running of sole proprietors business. Sole Proprietor is solely responsible for all the acts and contracts entered in the course of doing business. He solely enjoys the profits of the business and in case of loss, is personally liable for the same. But there are some restrictions in sole proprietorship concept, as the bank does not feel safe and don’t prefer to provide a loan to the owner and there is no concept of funding in case of sole proprietorship as there is no specific law in India which govern and control the sole proprietorship.
2. Features:
  1. It is NOT a separate legal entity
  2. The proprietor has unlimited liability
  3. The proprietor is personally liable for all the debts and losses of the business
  4. The proprietor can sue or be sued in its own name
Partnership:
1. Under the partnership form of business, 2 or more person enter into an agreement to enter into a common business in order to share profits earned and shall be personally liable for loss incurred. All decisions are taken with mutual consent of the Partners. The Partnership is governed by the Partnership Act, 1932 and registration of the firm is at the discretion of Partners and the same is optional as per the abovesaid Act. However, a registered firm can take legal action against the firm, partners or third party.It is an easy and inexpensive form of business to establish and manage as compared to Company form of business.
2. The person having control and stake are known as Partner of the Partnership Firm and are responsible for sharing the losses and profits of the firm in an agreed ratio (i.e. profit sharing ratio). The said partners are personally liable for the debts of the partnership.
3. A partnership firm can be formed by drafting a Partnership Deed and business can be immediately started subject to relevant sector conditions and local laws etc. It can be a registered firm or un-registered Firm.
4. Features:
  1. There should be at least 2 persons to form the Partnership Firm
  2. Every partner act as an agent of another partner
  3. A business of Partnership firm can be carried on by all the partners or any one of them acting for all
  4. Every partner contributes his capital in the agreed ratio
  5. Liability of each partner is unlimited
  6. Partnership Firm can be a registered firm or un-registered firm under the Partnership Act, 1932
Societies:
1. Society is an associated person which is formed for promoting art, charity, research, religion, commerce or any other useful purpose. The society registration Act, 1860 was passed for the registration of society in order to give them the status of a corporation or a Legal person.The Societies are formed for the benefit of a particular group or community. This type of business earns profits for the benefit of society. Therefore the members elect their representative, who shall have the contractual authority to do business for the welfare of society. The Societies are governed by the Societies Registration Act, 1860.
2. Features:
  1. Easy formation;
  2. Limited Liability of members;
  3. Perpetual existence;
  4. Social services.
Limited Liability Partnership (LLP):
1. Nowadays, people are opting for Limited Liability Partnership for doing business due to its special and unique features. In actual it is a combination of both Partnership and Limited Company. Limited Liability Partnership (LLP) is a separate legal entity. In general law, an LLP is regarded as a body corporate. It is managed by the LLP Agreement entered into between the LLP partners. Partners in LLP do not receive the dividend but enjoy direct access to the flow of income and expenses.
2. Features:
  1. No requirement of minimum capital contribution
  2. Minimum of two partners are required to form an LLP
  3. No restrictions on the maximum number of partners.
  4. Partner’s liability is limited to the extent of the agreed contribution in the LLP agreement.
  5. Minimum annual compliances as compared to Company
Company:
- This form of business is most preferred as they are incorporated as a separate legal entity. Therefore, the members are different from the Company and are not liable for the acts of the Company. It has perpetual succession. Member may come and the member may go but the company goes forever, it continues to exist even if all its members die. Type of Companies are defined below:
  - One Person Company (OPC): One person company is another type of Private Company having a sole member and a nominee of the Sole member. All the decisions are taken by the sole person and is solely liable for the acts. After his death, the powers are transferred in the hands of the Nominee. A One Person Company has to mention the word “OPC” in its name.
  - Features:
    - Only a natural person who is resident in India and citizen of India can only be appointed as a member of One Person Company.
    - Maximum turnover a One Person Company can make is 2 Crore. Also the maximum share capital Rs. 50,00,000/-
    - Only one shareholder is allowed in One Person Company.
    - It is a separate legal entity
    - Minimum number Director is 1.
  - Private Company: Private Company shall have at least 2 members and maximum 200. The members appoint their representative called as Director who shall look after the day to day management. Their shares cannot be traded on any stock exchange i.e. BSE or NSE, nor issued to the public via Public Issue. Companies Act, 2013 has granted a number of advantages and exemptions to private limited companies in order to facilitate doing business in India easily and effectively without much compliance and incurring much cost.
  - Features:
    - Shareholders right to transfer shares is restricted
    - The number of shareholders is limited to 200
    - An invitation to the public to subscribe to any shares or debentures is prohibited.
    - Minimum number of Director is limited 2.
  - Public Company: Public Company shall have a minimum of 7 members and no limit for the maximum number. The shares of a Public Company are freely transferable and the holders have an easy exit option. Further shares of Public Limited Company can also be traded on stock exchanges like BSE & NSE after complying the suitable provisions of the law and its share can also be issued to the public via Public Issue.
  - Features:
    - The liability of its members is limited
    - Its shares are freely transferable
    - No limitation on maximum numbers of members.
    - Open invitation to the public to subscribe to its shares is allowed.
    - A public company is required to have at least three directors.

Therefore if you want to be the Leader, choose the option best suitable for you. Because then only you will be able to reach your goal within a certain time period. In case anyone needs any assistance with respect to above-mentioned FORM OF BUSINESS then feel free to contact us. We would be eager to help you

Forms of doing business in India – An Opportunity to achieve Dreams